A few years ago, I wrote about income share agreements. ISAs are a novel way of financing higher education. Under this model, rather than paying tuition, a student agrees to pay a percentage of their future earnings back to whatever entity agrees to finance the person’s education now. It’s now called deferred tuition, and it’s still a bad idea.
There’s an interesting alternative to the student loan model of financing education floating around: In essence, sell stock in yourself.On Wednesday, Senator Marco Rubio and Representative Tom Petri introduced legislation defining “income share agreements” (ISAs), which are basically contracts where investors could fund your education in exchange for a percentage of your future earnings. Under such agreements, which are expressly not loans, an investor could lay claim to a limit of 15 percent of your future income under a contract that could last no more than 30 years. (Those are just upper limits. Presumably most contracts would be shorter and have lower percentages of income involved.) The idea is interesting, and worthy of consideration insofar as it transfers the risk associated with education funding away from the student and their family. One of the worst possible outcomes of taking out tens of thousands of dollars in student loans is then not being able to pay it back, either because you failed to finish your degree or, once you did, there simply weren’t enough well-paying jobs in your field. Changes in bankruptcy law have made it much more difficult to get out of student loan debt even in difficult circumstances. Under the proposed ISA rules, on the other hand, it would be the investor who would be out of luck, not the student. Unfortunately, that doesn’t mean that selling stock in yourself is a good idea for a prospective student in the mental health professions of psychology, counseling, clinical social work, and family therapy. For one thing, private investors may simply not be willing to fund education that is long and expensive when they look at salary data in mental health. It seems much more likely that such investors would flock to students in more lucrative fields like business, engineering, technology, and medicine. And even if some enterprising therapy students could attract investors willing to fund their education, the kind of system envisioned with ISAs holds the potential to be rather exploitive. Let’s say, for example, that you are unable to secure enough in student loans, so you turn to a private investor to fund your education. And — lucky you! — you find one willing to take on the risk. In exchange for $50,000 to fund your education, they ask for 10% of your income per year for the next 25 years. To a hopeful student with no other options to fund schooling, that may be an attractive offer. From the outside, though, it just looks like a classier form of indentured servitude. It’s true that if you don’t complete your degree, you would not need to pay the money back. However, because these agreements define the investment as being in the individual, and not the specific career for which you received education funding, you would still owe a portion of what you make for the term of the agreement no matter what kind of work you wind up doing. Worse, if you do complete your degree, and you do find a well-paying job after graduation, you could easily wind up paying back four or five times the amount of the initial investment. Investors, after all, would understandably want their good investments to pay off bigger if they are taking all the risk for the bad investments. If nothing else, I admire the creative thinking on Rubio’s and Petri’s part. (In fairness, it isn’t their original idea; startups like Upstart and Pave have been working on this model for some time.) There is certainly some merit in having the most successful students end up paying the most for their education, rather than further financially punishing those who struggle the most to find work or finish their degrees. However, as it applies in mental health, this kind of a funding vehicle seems like a band-aid at best. It would keep a supply of students coming in to overly long and expensive training programs, with primarily investors and universities profiting. We still need a viable long-term solution that makes graduate training in mental health accessible and affordable for those who prove they are capable of doing the work. # # # Your comments here are welcome. You can post them in the comments below, or email me at ben[at]bencaldwell[dot]com.